The Rising Importance of Digital Estate Planning and Tax Regulations for Blockchain and Cryptocurrency Assets

by | Jul 17, 2023

In the rapidly evolving digital landscape, two areas have emerged as critical considerations for individuals and businesses alike: digital estate planning and tax regulations concerning blockchain and cryptocurrency assets. 

Digital assets, including documents, audio files, videos, logos, spreadsheets, websites, and more uniquely identifiable digital valuables, have become an integral part of our lives, and their importance is increasingly acknowledged in estate planning. Simultaneously, the rise of blockchain-enabled funds and cryptocurrencies presents challenges and opportunities for investors, requiring them to stay updated with the latest tax regulations. 

Creating a Digital Estate Plan

The Revised Uniform Fiduciary Access to Digital Assets Act (RUFADAA) has established legal grounds for executors or attorneys to access an individual's online accounts after incapacitation or death. However, a proactive approach to digital estate planning is critical. 

Creating a digital estate plan involves taking an inventory of your digital assets, deciding how they should be handled upon your death, appointing a digital executor, and securely storing your digital estate plan. Keep in mind that the digital executor could be different from the traditional estate executor, but they should be able to work together effectively. 

The Role of Blockchain in Financial Services

With the global wealth management industry estimated to hold about $103 trillion in assets under management (AUM), blockchain technology plays a vital role in the financial services sector. As blockchain becomes more integrated with financial services, it's transforming the way funds are managed and traded. Blockchain-enabled funds are becoming increasingly prevalent, particularly in the Exchange Traded Funds (ETFs) sector, which represents about 13% of equity assets in the US, 8% in Europe, and 4% in APAC.

Tax Implications for Cryptocurrency

The Internal Revenue Service (IRS) and other tax authorities worldwide are paying close attention to digital asset transactions. Starting in 2022, US taxpayers are now required to indicate on their tax returns whether they received or disposed of any digital assets. 

New legislation enacted in 2021 has extended reporting rules to cryptocurrency exchanges, custodians, and platforms, and to digital assets such as cryptocurrency. Businesses that accept crypto payments of $10,000 or more are now required to report them to the IRS on Form 8300, starting from 2023.

Furthermore, cryptocurrency exchanges/platforms are now obliged to gather customer information, track holding periods, and record buy-and-sell prices of digital assets. This information will be reported to both the customer and the IRS, using a modified Form 1099-B.

If your business excepts cryptocurrency, it's important to stay on top of current regulations. Freese, Peralez, & Associates is currently accepting new clients and we'd be happy to help guide you through the maze of digital assets, give us a call today!